Fear of investment is putting women’s later life income at risk

The gender pay gap hit the headlines again recently with the BBC publishing a list of its highest paid stars. This story is likely to run and run as new legislation forces large companies to disclose their gender pay gaps by the end of this tax year.

Earning less during their working lives already puts women on the back foot when it comes to income in retirement. Lower salaries mean lower employer contributions for auto-enrolment and lower tax breaks. Now more than ever, the onus is on women to pay more to fund their future financial security.

Yet research by Alliance Trust Savings as part of our Investing Gender Gap special series has found that, by being more risk averse and less likely to invest outside the workplace than men, women could be compounding the gender pay gap and likely losing out on income in later life. Our research showed that, aside from workplace pensions, women are less likely to own investment products than men.

While half (50 per cent) of men have a private pension and nearly four in ten (39 per cent) have a stocks and shares ISA, only 37 per cent and 30 per cent of women respectively have the same. The study also found that women are more risk averse than men and more likely to save in cash – 33 per cent of women had recently saved into a cash ISA and 65% into a savings account, compared to 26 per cent and 59 per cent of men respectively.

This is an increasingly important issue as women’s income pre-retirement is falling. The Institute of Fiscal Studies recently found that household incomes for women aged 60 to 62 have fallen by around £32 per week on average due to changes in the state pension age, despite an increase in employment rates in this age group.

Of course, with people living longer, maintaining a decent level of income to fund our desired lifestyles through all stages of our lives is becoming more of an issue for everyone. But women have been particularly affected by changes to the tax and benefit system alongside long-standing differences in pay and working patterns. Mothers are still more likely than fathers to take extended periods off work and / or switch to part-time work to raise children. By being more risk adverse and more likely to save in cash than men, many women could be making their situation worse by missing out on building their own nest-egg to help fund a more comfortable lifestyle pre- and post-retirement.

Education is a large part of the solution. It’s important that women and men have the necessary information to make informed investment decisions. While companies must ensure that would-be investors fully understand the risks associated with investing, it’s vital that this is done without scaring them away, and also that the potential opportunities are properly communicated. And if we can start shaping financial behaviours earlier, even better. Sixteen of the UK's leading financial services companies, including Alliance Trust Savings, have already come togeth‎er to fund KickStart Money, a groundbreaking new programme that will bring financial education to thousands of primary school children across the country.

We all have a role to play in closing the investing gender gap, by building confidence around money matters and encouraging everyone to take a greater interest in their financial affairs.

Sara Wilson is head of platform proposition at Alliance Trust Savings.

Keep up to date with all the latest personal finance news and investment tips by signing up to our newsletter. Email subscribers will also receive a free print copy of Money Observer magazine.

Subscribe to Money Observer magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.